Reliance Industries to enter fast-food business with its own brand next year


December 12, 2011

Sarah Jacob & Chaitali Chakravarty, The Economic Times

Bangalore/New Delhi , December 12, 2011

Reliance Industries, a $50-billion-plus oil and gas giant, will enter the fast-food business with its own brand next year, opening yet another front to do business directly with India’s growing young population after retail and 4G wireless services.

Mukesh Ambani has roped in Rishi Negi, COO of multiplex operator Fame India, which is partly owned by his younger brother Anil Ambani, to develop a quick service restaurant (QSR) concept within 3-4 months, two senior Reliance executives said.

Negi will spearhead Reliance’s entry into a segment that is growing at least 25% a year and where international brands such as McDonald’s and Domino’s jostle to introduce Indianised cuisines to take on popular local chains such as Jumbo King and Saravana Bhavan.

Reliance is exploring a scaleable model like McDonald’s and Domino’s, complete with a standardised menu and express delivery, the executives said. It plans both independent outlets and presence in food courts.

"The company is looking at anything suitable for Indian palate, be it Chinese, Italian or Indian cuisine," one of them said. The Reliance Industries spokesman declined to comment. The executives said the company has zoomed in on Delhi, Mumbai and Bangalore as the tentative locations to launch the business.

"With a hypermarket format already attracting a large number of consumers, it makes sense to bundle in food as well," one of the executives said. The company has already experimented with a fresh bakery at its hypermarkets, Reliance Mart.

The move is in line with Mukesh Ambani’s aggressive moves to build businesses for the country’s consumer class, dominated by demanding and aspirational youngsters. His retail arm, Reliance Retail, operates around 1,146 multi-brand outlets across the country through chains such as Reliance Fresh, Reliance Super and Reliance Mart.

Also, Reliance Industries is the only pan-India licence holder to offer 4G services, which can provide internet connection at more than 100 mbps.

The company, which paid Rs13,000 crore for the licence, is expected to launch 4G data services within a couple of months at justRs10 per GB, or almost one-tenth of current 3G charges-an offer the Facebook generation may find hard to resist.

Negi is coming in with some experience in the restaurant business. He was the COO of Pizzeria Restaurants, which operated Pizza Hut a few years ago, and was food & beverage manager at Taj Coromandel, the Taj Group’s 5-star hotel in Chennai.

His task is to help Reliance get a foothold in the booming organized restaurant business in the country, which is estimated at Rs7,000-8,500 crore and is expected to grow to Rs28,000 crore by 2015, according to data published by the National Restaurant Association of India and management advisory firm Technopak last year. But experts warn that it’s not an easy business.

"There are plenty of break points where consumers can be dissatisfied or where a loss of margins is possible," says Devangshu Dutta, chief executive of retail planning consultancy Third Eyesight. "If a chain can get its delivery model right, the returns will be strong," he adds.

Ashok Bajpai, partner at Morris Street Advisors, a firm that is partnering the entry of international food brands, says, "It’s meant for companies who have the appetite to sink money in the initial years into brand building as profits begins to show only after 3-4 years."

Bajpai earlier headed Pizza Hut’s delivery business. While Reliance Industries will not have a problem with sinking money into the business, it will run into some formidable competition with every established company scaling up and more lined up to enter the business.

Most big international chains including McDonalds, KFC, Pizza Hut, Subway, Quiznos, Costa Coffee, Country Chicken and Taco Bell are already here, while others such as Starbucks, Dunkin Donuts and Pizza Express are all set to open shops here. Then there are numerous local chains, small and big. They are all attracted by India’s burgeoning middle class that increasingly eats out not just for entertainment but also as a necessity because more people live independently or in nuclear families and work long hours.

These youngsters, always pressed for time, rush to the nearest fast food joint for a quick grab or get it delivered to their workplace or home. "As consumers begin to travel, they tend to look for standardisation as it offers some sense of security. They know what to expect, which is why chains work," says Dutta of Third Eyesight.

That is a long-term growth trend that Reliance like many others would want to feed into, say analysts. Some Indian entities such as Amit Burmanowned Lite Bite Foods and Amul owner Gujarat Co-operative Milk Marketing Federation too have entered the restaurant business recently. Private equity firms have been upbeat on the sector.

India Equity Partners recently bought South Indian restaurant chain Sagar Ratna Hotels for Rs180 crore, while ICICI Ventures invested around Rs250 crore in RJ Corp’s Devyani International, which operates KFC, Pizza Hut and Costa Coffee.

Besides multi-brand chains, Reliance Retail owns specialty stores such as books and music chain Time Out, footwear chain Footprint, department store Trends, consumer durables chain Digital and home decoration through brand Living.